Spain Living in spain What Brexit means for your money

What Brexit means for your money


In the week that has passed since the country took the plunge towards Brexit, , fears over economic growth and a vacuum of have brought little clarity to investors, homebuyers and retirement savers as they navigate the potential pitfalls of an EU departure.

Uncertainty clouds everything from interest rates and portfolio values to foreign holiday homes and the price of petrol. Many will have seen the values of their investments fall, along with pension values if invested in the UK stock market. But opportunities for smart investors have also begun to emerge from the market maelstrom.

FT Money reporters assess the risks of the EU rupture for your financial plans and offer ways to sidestep its most damaging implications.

The investment outlook

For investors, the prospect of Brexit has so far been a gloomy affair, with plummeting share prices, rock-bottom bond yields and all hitting portfolios hard. But low share prices and a weak currency could present opportunities for a portfolio, as well as threats.

In UK equities, the two main indices . While the large-cap FTSE 100 index had recovered all of its post-Brexit losses by Wednesday, the FTSE 250 was still down, leaving mid-cap funds as the worst performers following the vote. FTSE 100 companies tend to have more international exposure, with the FTSE 250 sell-off down to its exposure to the UK economy, analysts say.

Tom Becket, chief investment officer of Psigma Investment Management, says he would be looking for opportunities to buy small and mid-cap stocks with depressed share prices over the coming weeks.

Others are less sure buying mid-cap funds is a good idea. Gary Potter, portfolio manager for F&C, says his portfolio was “slightly overweight” FTSE 250 stocks, but that the position was under review.

For investors who want to steer clear of Brexit shockwaves, investment opportunities abound globally. Investing in overseas equities means your portfolio is less vulnerable to further declines in sterling, says Eric Lonergan, multi-asset fund manager at M&G Investments.

“If you look at China, what happens to the UK economy really doesn’t matter to them,” he says. “If you look to Japan, what matters is their fiscal plan.”

Mark Preskett, portfolio manager at Morningstar, says global diversification is key. “We’ve got it all; we allocate across the regions,” he says. Investors are divided on US equities, however. “US exposure is the one we’ve wrestled with the most,” he adds.

Although “appear overvalued”, he says, “the dollar remains a strong diversifier when it comes to portfolio construction”.

But Mr Becket of Psigma points to political risk in US, too, flagging the controversial campaign of Republican party nominee in the presidential election.

Tom Stevenson, investment director for personal investing at Fidelity International, recommends diversifying across regions. “Timing the market’s ups and downs is as unwise today as it was before the vote,” he says.

But the weak pound may still catch investors out. Darius McDermott, financial adviser at Chelsea Financial, warns against moving too heavily into US or Japanese equities and suffering a loss because of the relatively weaker sterling.

“Don’t rush into the dollar as it has already risen significantly on the back of the pound falls, but make sure your portfolio isn’t just assets or equities reliant on sterling,” he says. “Perhaps think about moving the UK equity exposure up the cap scale — trimming small and mid-cap and adding a bit to the FTSE 100 where revenues come mostly from outside the UK.”

Investors can also think about other investment opportunities that might arise from a weak currency, says Ben Yearsley, investment director of Wealth Club.

Weak sterling may make holidays more expensive, so investors could look for funds with a “staycation” theme, he says, such as those that invest in UK caravan parks or pubs. “Think about what has exposure to the ,” says Mr Yearsley. “Think about how you can make money from a weak economy.”

Rash readjustments to portfolios bring the danger of exposing yourself to other risks. “We mustn’t lose sight of the risk of a lancing of the Chinese credit bubble or a sharp devaluation of the yuan, nor indeed the ramifications of a Trump victory,” says Jason Hollands, managing director at Tilney Bestinvest.

“I would caution against hastily moving a portfolio around in what is likely to remain a very turbulent period for markets and funds with capital preservation as part of their mandate,” he says.

Mr Potter, of F&C, says investors must not lose sight of their long-term goals. “All events are monumental in at the time but in history they’re just issues that happen,” he says. “One thing commentators forget when they talk about investing is that it should be for the long term.”

Safe in bricks and mortar?

Some homebuyers are adopting a “” approach in the wake of the vote, reasoning that if house prices fall, they will be in line for a cheaper purchase.

Mortgage brokers say buyers who were putting their deals on hold were either delaying them or cancelling them entirely. Aaron Strutt, director at broker Trinity Financial, says some were far advanced in the process and were on the brink of exchanging contracts.

However, the trend has not yet led to a widespread knocking-down of prices. “They might be hoping for a better deal but a lot of sellers aren’t ready to give a drop in price.”

Others say there had been a noticeable, though not drastic, drop in activity. David Hollingworth, director at broker London & Country Mortgages, says: “It’s not fallen off a cliff. Inquiry levels are generally a little bit softer, but it’s not silent here.”

It is too early to say what the will be, but one analyst note from Bank of America Merrill Lynch assumed a 10 per cent fall in average selling prices, and pointed to the 13 per cent decline in prices outside London that occurred during the 2009 recession.

“We believe that even though there is a structural shortage of housing in the UK, it is likely that consumer confidence will be hit and this in turn could result in decisions to move house being either deferred or permanently cancelled,” the note said.

Researchers at property advisers JLL are less bleak, but nonetheless forecast a flat 2016 overall and falls of between 3 and 5 per cent in the subsequent two years. Transaction volumes are likely to drop, too, by 10-15 per cent, “resulting in downward pressure on prices for at least a couple of years. We anticipate current activity levels will return but this is unlikely before late in 2018.”

One sticking point, should prices fall significantly, is that the valuation given before mortgage approvals may disappoint sellers and force them to trim their borrowing, as surveyors adopt a more cautious approach to property values.

“We’ve had more down valuations and more of a chance the valuation might not stack up. Valuers are going to be under even more pressure now,” says Mr Strutt.

Some foreign buyers, meanwhile, have spotted . Ollie Hooper, a buying agent for prime central London properties, says he has seen a surge in inquiries from his largely overseas clientele, particularly those from the Middle East or whose currencies are US dollar-pegged. “Most are intrigued and want to see what’s happening. It looks like a currency play.”

What is the outlook for buy-to-let? Highly leveraged investors will face the same levels of uncertainty over interest rates as residential owner-occupiers with big mortgages — and their profits are in any case set to decline further as George Osborne’s for mortgage interest payments comes into force between 2017 and 2020.

But some are predicting, at least in the short term, an uptick in rents as buyers rethink or delay purchase until they have a clearer idea of economic conditions, particularly first-time buyers. “It’s a good outcome for landlords as more first-time buyers are going to have to rent,” says David Lawrenson, a landlord adviser and author of The Tenants’ Guide to Successful Renting.

The picture on pensions

Pension savers and investors are being urged to protect their portfolios as market uncertainty puts their retirement funds at risk. Financial advisers say those approaching retirement, or who are drawing on their pension savings, are financially vulnerable if their funds have stock market exposure.

“Market turbulence is not helpful when looking to take income from investments and certainly market falls in the short term can have a big effect on overall asset levels when combined with making withdrawals,” says Andy James, head of retirement planning at Towry, a firm of advisers.

Rules that came into effect last year gave investors or as little of their defined contribution pension funds as they wished, with no requirement to buy an annuity.

But Mr James says that now might be the time for investors to dip into a cash buffer, if they have one, rather than draw on their pension, and give time for “things to settle down”.

Patrick Connolly, a certified financial planner with financial adviser Chase de Vere, says investors who were planning to begin taking income from a pension pot should consider capital protection. “The right approach for these people is not to be too reliant on the stock market,” says Mr Connolly.

“They may want to hold equities because there is still long-term growth potential but to spread risk by holding other asset classes, such as fixed interest and commercial property.”

Mr Connolly adds that younger pension savers, who are decades away from retirement, could afford to ride out the market volatility.

Meanwhile, prospects worsened this week for individuals looking to turn their pension fund into a secure income in the form of an annuity, after rates were hammered by market volatility. A flurry of insurers cut their annuity rates during the week, as gilt yields, which providers use to price .

“Gilt yields and annuity rates have been dropping steadily over the past year,” says Tom McPhail, head of retirement policy with Hargreaves Lansdown, the investment manager and annuity broker.

“The events of the past couple of days have given new momentum to that trend. For any investor planning to buy an annuity in the immediate future, it may make sense to do so sooner rather than later.”

Those looking for a secure retirement income were urged to consider enhanced annuities, which pay a higher income to those in ill health or who, due to lifestyle reasons, had a shorter-than-average life expectancy.

“As always, make sure you shop around for the most competitive terms for your personal circumstance before committing to a deal,” adds Mr McPhail. “If you want to delay purchasing an annuity, but need to draw on your pension savings, then look at drawing an income from your funds using a drawdown arrangement instead.”

Large numbers of expat Britons live in the Dordogne, France, but some fear for their place post-Brexit

The expat view from abroad

There are 2m British citizens living, working or travelling in the 27 member states of the European Union, according to . Of these, 1.2m have fully migrated to EU states.

So what will the people who have made EU countries their home do after Brexit? They have enjoyed not only the right to work in their adopted homes, but also to access healthcare on the same terms as locals. Those who have retired to EU nations can draw their British state pensions. Spain is has been the most popular destination for such British migrants, followed by Ireland, France, Germany and Italy, according to United Nations data.

Whether these expats will continue to enjoy these rights may depend on a future deal the UK agrees with EU nations. In a Brexit briefing document published in February, the UK government said: “At the very least, any terms which the UK seeks for its own citizens would have to be offered to EU citizens wishing to come to or stay in this country.”

For those who own property in EU nations, there are uncertainties over whether they would now be able to live there year round, according to Charlie Tee, a partner at law firm Withers. “There could be restrictions on how long they could stay per year,” Mr Tee says, “in common with that country’s arrangements for other non-EU citizens.”

These are all different. Malta allows people it considers of “good standing” to become citizens through investing a sufficient amount in the local economy, by buying a home there. Non-EU citizens who invest more than €500,000 can also apply for Spanish residency, under its “golden visa” scheme, launched in 2013.

There are around 400,000 British pensioners living in EU nations. They face the issue of the falling pound buying less for them in their adopted country. In addition to currency volatility, there is also uncertainty over whether those receiving the UK state pension while living in the eurozone will continue to have their pension uprated — or revalued to account for inflation — each year.

This is because the uprating requirement is an EU one and there is uncertainty over whether it will remain as part of the UK’s exit from the EU.

For the next two years or so, though, Britain will remain part of the EU as it negotiates the terms of its exit under Article 50, giving expats time to consider their options.

Reporting by Josephine Cumbo, James Pickford, Naomi Rovnick and Aime Williams


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